Wednesday, 15 June 2005

Headline: Three years of misses on both the top and bottom lines, customer churn exceeding $56 million annually and continuous market share losses result in the break up and sale of another industry leader. Approximately 1,500 employees received their pink slips as the Company closed it doors today!

If a firm's revenue growth is unimpressive I recommend that leaders first look to how they manage current customers for clues to the solution. More often than not customer attrition is the canary in the mine, a harbinger of poor sales growth. Not surprisingly many leaders opt for the sex appeal of new sales to solve their growth problem. They often conceptualize that a focus on customer attrition is too defensive, too demoralizing for their "hunters". In this exciting technology led world we live in let me remind you that an idea always precedes action. Your idea or philosophy about where the customer fits in your business determines everything about you as a company and ultimately what strategies you decide to implement.

In no particular order of offense let me describe how customer attrition philosophy is often actualized in real life. When faced with customer attrition challenges one group of managers will take a deep dive into spreadsheet management. All in the name of accountability they start tracking everything imaginable. They will assign task forces for task forces and even measure the number of project teams working on the problem. Sometimes they schedule conference calls before they know why. Very often marketing functionaries are wrongly obsessed with measuring outbound emails, outbound phone calls, scheduled presentations, and face-to-face sales meetings. This group clamors incessantly about how effective managers track activity and measure everything. I so want this group to re-read Deming's book, "Out of the Crisis" to get a sense of what the father of quality had to say about this phenomenon.

A second group of managers is marginally more thoughtful and tends to use lean process, six-sigma, and continuous improvement initiatives to kick start customer attrition improvement believing that process drives everything. Their teams minimize the kinds of data previously mentioned in favor of critical service incidents, order form errors, call center wait times, and a host of other process variances. Unfortunately this faction often draws conclusions from an exclusively internal perspective. This unit's findings mistakenly become the customer's in a very "we know best" kind of way. Although this cluster usually extolls the virtue of the customer's voice very rarely do we hear that voice in the final analysis. This crowd still finds its growth strategies de-railed because their perspective about customers is too fragmented. These managers tend to see customer attrition issues as quantitative exercises and often miss the human side of the customer's decisions.

The next group systematically and purposefully denies that customer attrition is a problem for their organization. These managers work extremely hard at separating facts and particulars about the customer situation. The level of dissection is so granular that it is impossible to understand context or to see important customer decision and use patterns. These managers see the truth that supports the story they want told but you can be sure their truth is not the complete truth. Make no mistake this group is often motivated by a combination of internal politics as well as pending investment trade-off decisions. However, this group is also motivated by the need to defend their turf.

The success culture in many of these organizations encourages managers to focus their energy on positive service events and customer experiences. The critical incidents that chip away at loyalty are decided to be outliers and exceptions that are not reflective of how the organization treats customers. Because it is our nature to unify observations any customer example that does not fit this unification pattern creates a tension that is inconsistent with the beliefs of this managerial group. Leaders grossly over-promote the positive customer experiences exaggerating their significance to such an extent that customers interpret the firm as "out of touch with our priorities". Customer attrition denial creates a false sense of excellence. It may take awhile to manifest itself in the marketplace; however, customers ultimately describe this group as complacent, misinformed about the quality of the customer relationship, and unresponsive. The term zone of tolerance comes to mind with this faction.

A relatively small group of leaders reason that customer attrition is not a bad thing. This faction assumes that unprofitable customers either need to be fired or charged draconian dues and fees for the privilege of doing business with the company. This group's decisions are based on the concept of customer attrition as a purification tool. Managers of this ilk promote their decisions as a spiritual cleansing of the firm based on a mystical Swedenborgian-like alignment with a higher cause. We often see this philosophy exhibited in firms where the sales force had been encouraged and/or commissioned to write new business at any cost. Ultimately the pendulum swings and either operations or finance feels compelled to clean things up. This concept of customer attrition is exceptionally dangerous because of its negative impact on brand image and sales force morale.

Time and again we are reminded that customer attrition is a complex business problem. There is no doubt that customer attrition improvement demands a certain degree of vision, alignment, and execution from both individuals and organizations. However, lacking a moral center that informs the customer attrition strategy there can be no sustainable vision, alignment or execution. So where do we find ourselves? Borrowing from Emerson: "We awake and find ourselves on a set of stairs; there are stairs below us, which we seem to have ascended; there are stairs above us, many a one which go upward and out of sight." In the context of customer attrition we must decide how we will conduct our customer relationships and whether we go up or down.

There is a three-step rubric to help you define your customer attrition philosophy. The first guideline recognizes the importance that customer history has on our success. Especially in these times it is insane to operate any business without the benefit of a marketing software solution. However, a history of critical incidents, sales call reports, webinar attendance, email communications, campaigns etc. is not as useful as actually living the customer's reality. Until leaders find a way to make customer history personal customer attrition will always be nothing more than an intellectual exercise. If you are serious about solving a customer attrition problem your systems and procedures must be aligned in a way that aids in developing a deep knowledge of the customer as an individual. You must accept that there will be data that unifies your understanding as well as information that defines relevant degrees of variance. To make history personal you must be willing to accept and use these two qualities of nature to your advantage. By the way, creating this kind of history is not simply a matter of algorithms and customer surveys.

Second, sustainable customer attrition solutions also require virtue. For example, organizations can implement technology in either a virtuous or a dishonest way. Does your marketing software system enhance your ability to manage the customer lifecycle or does it only recognize the initial sale? Does your system encourage honest customer responses or inquiries or does it manipulate customer visits by directing customers to home pages of your design? Does the structure of this critical system essentially support how you intend to conduct the customer relationship over time? Why are these questions important? Within the context of customer attrition we know that a subjectivity bias is disastrous. As in most things virtue is in truth. So, the marketing software system must not only possess the right architecture to match your customer attrition philosophy it must enable you to conduct a truthful inquiry and analysis.

The final piece of the rubric is to implement a diagnostic framework that helps you perform a comprehensive analysis of the individual customer situation. Customer attrition is a dynamic challenge and as such is not something you solve today and then check off the list. Organizations that have an actionable customer attrition philosophy develop a common system for examining the health of each customer relationship. Their systems, whether automated or manual, recognize the interrelatedness of price, product and service quality, delivery system effectiveness, communications, ethics, and customer experience. In addition, the implementation of this framework will be consistent and routine providing a longitudinal analysis that aligns with the customer lifecycle.

At the end of the day there may yet be a few commercial enterprises in which customer attrition has little significance. However, most of us live in a competitive business environment and understand how difficult it is to win a new customer. So while keeping and growing customers may be considered somewhat less exciting than winning new customers I have argued that customer attrition performance is the center of sustainable business performance. It requires a greatness of heart and smart.